3 levels of loyalty, and discounting programs’ challenges in companies
The fundamental task of any pricing policy is to create revenue. It may seem obvious, but companies struggle to keep their pricing in check, especially when operating on the large scale of B2B sales. This is understandable, as hundreds, or even thousands of products and clients, as well as huge revenues to protect, are not an easy combination to deal with.
“Pricing is the only element in the marketing mix that produces revenue; the other elements produce costs.”
– Phillip Kotler
The marketing Hall of Famer is of course right, and my 20 years of experience in professional business services (business development, service and support, quality, marketing, promotion, and finances) is that company pricing policies often leave much room for significant improvements. Most of the businesses’ mistakes — or just slips — are easy to identify and eradicate today, as they are commonly made by many. And there are solutions that help.
Pricing issues are rarely simple and isolated. Usually they are diverse, tricky, and spread through organizations both horizontally and vertically. Pricing management is a process involving many subsidiaries, including sales representatives, sales managers and CFOs. Each process participant faces different challenges, but they all need support, need to stay connected and communicate effectively. This is especially applicable within CLMs.
“If a company doesn’t manage its pricing policies on all levels,
customers may work those policies to their own advantage.”
The above was written by Arleigh W. Walker and Elliot B. Ross in their Managing Price, Gaining Profit analysis published by Harvard Business Review as far back as… 1992!
Level 1: Sales Representatives’ challenges: time and decision making
Being on the frontline, sales reps play an important role in pricing policy implementation. If they participate in the pricing process as decision makers (and this is usually the case, especially in B2B), they must have access to data and information about client performance. Without easily accessible information at hand, sales representatives either spend a lot of time obtaining it, or make inaccurate pricing decisions.
And let me just remind you that sales reps often get swamped with paperwork and other non-revenue-generating stuff. Actually, almost 65% of their time is spent on activities not related to sales, as statistics show.
If sales people can’t track their client performance effectively, they could make wrong pricing decisions; some of the revenue could be lost, client loyalty undermined.
It’s possible nowadays to have a pricing process supported by visual simulations of loyalty program incentives based on customer performance, a 360° view of each customer with various built-in analyses and reports, automated approvals and paperless process management.
Level 2: Sales manager challenges: rebate control and dynamics control to adapt to market needs
The more competitive a market is, the greater is its dynamics. Companies have to be able to react quickly, as their competition can make a move at any time by changing prices or introducing attractive rebates for clients.
And as studies show, raising customer retention rates by just 5% increases profits by 25% to 95%. Furthermore, 82% of companies agree that retention is cheaper to execute than acquisition, according to this eConsultancy report.
A sales manager’s quick reaction (like a new, better offer) can save the day. But s/he needs to have the right tools to do that. Pricing is the key here, and to make the right decisions managers should base them on rebate policy performance.
That’s achievable with fully configurable rules engines for implementing even the most complex pricing policies and rebate simulations.
Level 3: CFO challenges: revenue leakage and rebate policy errors
Errors in rebate policies (also fraud) and wrong pricing decisions cause revenue leakage. It’s simple — companies lose money by overpaying their clients for products and services provided. In fact, especially in complex, rebate-based CLMs, billing errors due to, for example, data irregularities, as well as the lack of efficient fraud detection, can cause huge losses.
The importance of preventing them grows with sales volumes and revenues, of course. As a tool for rebate and payment calculation, Excel spreadsheets are not enough anymore, as they’re susceptible to errors, slow, and require manual updates.
Efficient revenue leakage prevention should be based on automated calculation, top-quality data management, as well as automated and integrated environments. Additionally, ensuring timely and accurate payments leads to increased partner loyalty.
Go digital with your pricing management
Thoughtful, efficient and error-free pricing management is a process that can and should be subject to digital transformation. Solutions based on Data Management, Automation and AI, combined with a holistic approach towards implementing them in organizations, are a step businesses make to secure revenues.
As mordorintelligence.com forecasts, the global loyalty management market was valued at USD 2617 million in 2018, and is expected to reach a value of USD 9280 million by 2024, at a CAGR of 23.3% over the forecast period (2019–2024)!